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Effects of the UK-Australia Free Trade Agreement

Posted on 28 June 2021
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Effects of the UK-Australia Free Trade Agreement

Recently the United Kingdom and Australia were able to broker an “agreement in principle” for a Free Trade Agreement (FTA) between the two countries. This “agreement in principle” was published on the 17th of June and is regarded as a crucial step, particularly for the UK, as it is its first major FTA agreement since Brexit was completed and Britain left the European Union. The UK had already signed an important number of deals with countries like Norway or Japan, but these were roll-over deals based on the ones that these countries had with the EU.

This FTA with Australia is of great importance for the UK as it is the first major step for showcasing their strategy for a “Global Britain,” which was one of the main arguments used during the whole Brexit process, from the campaign until the negotiations, to argue the benefits of leaving the EU. Therefore, it is crucial for the British government that this deal is successful, notably considering the amount of political capital that they have spent on it (Watson and Disis, 2021; Matthews and Robertson, 2021).

This deal is centred on the removal of tariffs on goods, as for instance it removes tariffs worth £4.3 billion of exports done by the UK. Not only that but, Australian tariffs on products like cars or whisky are eliminated after five years from the deal being signed, which will enable the Australian consumers to enjoy British products and a cheaper price. The British government pointed out that “iconic British products like cars, Scotch whisky, biscuits and ceramics will be cheaper to sell into Australia.” Regarding the Australian products being imported into the UK, this FTA will allow that 99% of Australian goods, including products like wine; to enter Britain duty free. What is more, one of the most important and controversial points is the removal of all tariffs on Australian beef and sheep meat imports after ten years from the signature of the deal. Nonetheless, before these ten years have passed, Australian exporters of these products will have access to a duty-free zone but with progressively increasing quotas on the amount of product that is allowed to be imported, for instance before UK tariffs start, 35,000 tonnes will be allowed in, whereas after ten years the limit will build up until 110,000 tonnes. Furthermore, Australian beef and sheep meat are not the only products, which have a unique timetable, as UK tariffs on Australian sugar will be eliminated after eight years, as well as Australian tariffs on dairy products will be waived after five years (Matthews and Robertson, 2021; Morris, 2021). Members of the British government were notably confident on the success and importance of the deal as, Prime Minister Boris Johnson argued in an statement that “today marks a new dawn in the UK’s relationship with Australia, underpinned by our shared history and common values,” “our new free-trade agreement opens fantastic opportunities for British businesses and consumers, as well as young people wanting the chance to work and live on the other side of the world” (Ellyatt, 2021).

Even though the removal of tariffs is the most important area of this deal between Australia and the United Kingdom, there are other areas in which they have agreed on. Firstly, these two countries have agreed on an extension of youth mobility visas for citizens. This deal enables citizens from both countries under the age of 35 to travel and work in the other country for a period up to three years, which will allow highly skilled workers to work abroad more easily (O’Carroll and Harvey, 2021; Matthews and Robertson, 2021). In addition, both Australia and the UK see this deal as an important stepping-stone for increasing the cooperation between them in key areas. One of these areas will be the reduction of digital barriers between both nations as this agreement will seek to promote the benefits from the digital economy, for instance by easing the free flow of data with no data localisation required. Moreover, this FTA will also promote the mutual recognition of several professions, among which are lawyers, engineers or architects, which will boost the job opportunities for their citizens. More importantly, this deal will encourage the cooperation on areas like labour, animal welfare, gender equality, tackling climate change and unfair trading practices (Matthews and Robertson, 2021).

As it has been mentioned before, this FTA is of great importance for the UK, due to the fact that it is the first deal from scratch, which Britain has signed with another country since Brexit was completed. Nonetheless, questions have risen about whether or not this deal will have such an importance, especially regarding the expected impact that it will have on the British and Australian economy. The forecasts are not particularly favourable, as for instance Mark Melatos, associate professor of economics at the University of Sydney has argued that he expects that this deal will have a very small economic impact (Watson and Disis, 2021). Australia is the one that is expected to enjoy the bigger benefits of this agreement, as it is expected that its exports will experience an increase six times bigger than the one that Britain will experience, according to a report from the UK Trade Policy Observatory (UKTPO), UK sales will grow by just 0.35%, while Australia’s business benefits will be around 2.2%. Not only that but, the UKTPO also forecasts that the stimulus that the UK will experience will be around 0.07% while Australia’s will be 0.16%. According to this UKTPO report, these results are so small, mainly because of the distance that separates both countries, as well as due to Australia’s small economy and the fact that tariff levels are already particularly low (Merrick, 2021; Swales, 2021). On the other hand, it has also been argued that this FTA is a key deal, because it will be crucial for the UK’s access to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as the British government pointed out that the trade deal with Australia “is also a gateway into the fast-growing Indo-Pacific region and will boost our bid to join CPTPP, one of the largest free trade areas in the world, covering £9 trillion of GDP and 11 Pacific nations from Australia to Mexico.” Therefore, it is clear that even though this deal may be economically almost insignificant, it would be a major step towards the idea of a “Global Britain” and towards other free trade agreements with countries that could provide a bigger economic impact to the UK (Ellyatt, 2021; Packham and James, 2021).

This deal has sparked huge controversy, particularly among the UK’s farming and agricultural sectors, due to the fact that they see this deal as an existential threat. This is mainly because food produced in the United Kingdom normally has to comply with higher standards and thus, has higher production costs, as for instance there are various animal welfare practices, which are allowed in Australia while they have been banned in the UK, like the use of antibiotics as growth promoters. Not only that but, Australian farms also enjoy a competitive advantage due to the huge extension of its country and the vast quantity of land used for farming, as there are Australian farms which count with over 50,000 animals (Morris, 2021; O’Carroll and Harvey, 2021). Several groups have raised their nervousness towards the possible effects of this deal, for instance Minette Batters, President of the UK’s National Farmers’ Union pointed out that “while the government has previously been keen to highlight how our free trade agreements will uphold our high standards of food production, there has always been a question mark over how this can be achieved while opening up our markets to food produced to different standards.” “We will need to know more about any provisions on animal welfare and the environment to ensure our high standards of production are not undermined by the terms of this deal” (BBC, 2021). In addition,  representatives from Scotland’s Farming, Supply Chain and Food Industries recently stated in an open letter “we are concerned that the pace of these negotiations, particularly the free trade agreement with Australia, is too quick and denying the opportunity for appropriate scrutiny and consultation,” “the risks here are enormous for the whole food and drink supply chain and, in the absence of any formal impact assessment to suggest the contrary, we remain hugely concerned at the impact on sensitive sectors of our industry” (Watson and Disis, 2021). Therefore, several people and organisations have severely criticised the British government for putting these sectors in such a dangerous position for such a limited economic benefit (Heron and Siles-Brügge, 2021). What is more, it has been questioned the impact that this FTA will have, as a precedent for future FTA´s like for instance one with the US, which is an even bigger economy than Australia. Martin Kennedy, President of NFU Scotland, stated his worry for a “snowball effect” of trade deals, which award quota-free access to the UK “if it does undermine our market, it not only puts farmers’ livelihoods at risk, it puts the environment at risk as well – the socioeconomic values of rural areas,” “if you don’t have people in agriculture in rural areas, then what else do we have? I know there is a push for rewilding, but do we want just a wilderness?” (Morris, 2021; Partridge. 2021).

It is clear that this deal is of great importance for the United Kingdom. Nonetheless, this FTA is also important for Australia, particularly geopolitically as this agreement positions both the UK and Australia as an economic counterweight in a region where China has been trying to progressively increase their influence. Therefore, this deal is of great concern for Australia, particularly because of the increasing tensions between Australia and China and the growing Australian need for allies to ensure their position against this possible threat (Packham and James, 2021).

In conclusion, since the result of the Brexit referendum came in, the United Kingdom has seen how political influence has permeated more and more into areas in which normally it should have a very limited influence. One of these areas has been foreign policy and the negotiation of free trade agreements like the one which has been recently agreed with Australia. However, this may have very negative consequences, particularly due to the fact that an important amount of political capital is spent on areas like this one, where political compromises are of great difficulty. This is perfectly showcased by Prime Minister Johnson´s statement regarding this FTA with Australia where he categorised this deal as ‘Global Britain at its best’ and pointed out that “today marks a new dawn in the UK’s relationship with Australia, underpinned by our shared history and common values,” Johnson said in a statement. “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” (Heron and Siles-Brügge, 2021; Al Jazeera and News Agencies, 2021). Therefore, the UK should distance political ideology from areas like trade negotiations, because if not it could result in deals like this FTA with Australia where sectors like British farming are put in danger for very limited economic benefits and mainly for political gains. As Professor Michael Gasiorek, director of the observatory at the University of Sussex argued that “liberalising agriculture may set a precedent with regard to future agreements (for example with the US) and it remains to be seen quite what has been agreed with regard to food standards.” “Allowing the import of foodstuffs with different standards to those of the EU may well cause further difficulties for the operation of the Northern Ireland protocol.” This deal could “reduce UK agricultural trade with the EU more than it increased it with Australia,” “economically the deal remains a poor substitute for the trade lost with European markets due to Brexit.” Therefore, for a successful “Global Britain” to happen, it is imperative that the UK realises its need for a more pragmatic strategy where political ideology plays a much more limited role (Merrick, 2021).

Bibliography:

By Mahmoud Refaat: The European Institute for International Law and International Relations.

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