Australia’s trade pivot – back to the future
Matt is a former Federal Member of the Australian Parliament, former Member of the Defence, Foreign Affairs and Trade Parliamentary Committee and was an adviser to the Australian Trade and Investment Minister.
Even before the UK Prime Minister displayed a pack of one of Australia’s favourite biscuits, Tim Tams, announcing the formal commencement of trade negotiations, there was a renewed enthusiasm for improved trade relations between the UK and Australia.
As both the UK and Australia seek to re-build their economies from the destructive forces of COVID-19, new trade opportunities will be even more important. Before exploring the opportunities, let us step back in time and look at the state of play.
In 1973, the UK was Australia’s third largest two-way goods trading partner. Now it is our 12th. UK consumers turned away from Australian produce when high tariffs and low quotas were imposed as a result of their membership of the EU.As China’s economy grew rapidly and their demand for Australian wine and food exploded, Australian companies gravitated to the new markets of Asia.
COVID-19 and the new economic and political challenges with China and in the USA, means an FTA with the United Kingdom would now serve Australia’s geo-political interests in that it would diversify Australia’s trade and reduce Australia’s reliance on the world’s two superpowers, China and the United States.
The current trade and investment landscape
The UK was the second largest direct investor in Australia and the second largest recipient of Australian Foreign Direct Investment (FDI) in 2019. UK FDI in Australia was £35.6bn and Australian FDI in UK was £15.9bn in 2018 - the second-largest destination for foreign investment by Australians.
The UK is Australia’s third largest services trading partner, with two-way services trade worth over $AUD 15 billion in 2018-19 and our 12th-largest merchandise trading partner, with two-way goods trade worth $AUD 15 billion in 2018-19.
The UK and Australia have also settled some agreements that will ensure continuity of cooperation on: nuclear issues, access for Australian wines; and mutual recognition of certain standards. These will come into operation on 1 January 2021.
What the Australian Government has said
Australia is seeking an ambitious and comprehensive FTA with the UK that drives increased trade in goods and services, two-way investment, economic growth and job creation.
Australia will also be looking to secure better market access for goods exports, especially in agriculture, and high-standard rules on digital trade and investment, to expand the economic relationship.
In particular, Australia will:
- seek modern and comprehensive investment rules that further strengthen the investment partnership with the UK;
- aim to secure the elimination of tariffs for all goods and establish mechanisms that address non-tariff barriers to trade between Australia and the UK;
- aim to secure provisions that strengthen the existing two-way trade in financial services, and explore the cross-application of key digital trade rules; and
- seek to lock in ambitious commitments that increase opportunities for digital trade across all sectors of the economy and support increased growth of e-commerce between Australia and the UK.
Australia’s Trade Minister, Simon Birmingham and the Australian Government’s Department of Foreign Affairs and Trade have referred to the following areas, among others, being of particular interest:
- goods market access (tariffs and quotas)
- financial and professional services
- digital trade
There have already been suggestions among Government MPs that the luxury car tax should be removed and included in negotiations on the trade agreements with the EU and UK. It would be a logical policy lever for the government to include in negotiations given its platform of reducing taxes and delivering lower costs to consumers. The removal of the luxury car tax has the added benefit that some luxury cars come from the UK, especially the Land Rover range. Minister Birmingham has said that EU requests on tariffs, including on cars, would be considered in the context of the overall deal.
What happens next in the trade negotiations?
As China continues to throw up various trade and political challenges and the US has its own political and economic headwinds, traditional markets and trading partners like the UK become even more important for Australia’s economy and international trade.
Minister Birmingham is very keen to land the trade agreement during his tenure. Although COVID-19 has caused some challenges and delays, there is a collective will to finalise the negotiations in 2021 at the latest as Australia heads to a federal election in 2022.
Prime Minister Morrison has recently established new relationships in Europe as Australia cements itself among the first movers group coming out of COVID-19. Both he and the British PM have proved themselves formidable and focussed campaigners. With the benefits of a new trade agreement with old friends within sight, both nations are committed to a win-win outcome.
Better priced Tim Tams and more Australian wine for the British, and cheaper Range Rovers for Aussies…
Cheers to that!