Public Policy

June 16, 2021

The UK-Australia trade deal and what it says about Global Britain

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This week, UK Prime Minister Boris Johnson and his Australian counterpart Scott Morrison announced a political agreement on the broad terms of a trade deal. This marks a significant milestone for post-Brexit Britain as it is the first trade deal that the UK has negotiated entirely from scratch.

Although the UK has successfully negotiated trade deals with more than 60 countries including with major economies such as Canada, Japan and South Korea since the Brexit vote, these deals had simply been rollovers of the deals negotiated by the EU. However, the UK has been successful in securing bespoke add-ons to some of these trade deals and in securing a commitment from most of the other countries to renegotiate the deal.

Economically, the Australian trade deal is not of great significance to the UK: by the Government’s own estimation the free trade deal with Australia will be worth an additional 0.02% of gross domestic product over 15 years, or £500m more than 2018 levels.

However, the Australian trade deal paves the way for British membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. This would reduce tariffs on exports to a bloc that includes countries across the Pacific and South and North America with a combined GDP of £8.4 trillion.

The Australian trade deal is also significant because it sets a template for the UK’s future trade deals with other major economies including India and the much-desired trade deal with the US.

Few details are yet to emerge from the UK-Australia trade deal, but from what we can gauge so far it seems that the UK and Australia has agreed a zero-tariff, zero quota trade deal with the mutual recognition of qualifications which will allow British professionals to offer their services in Australia and vice-versa.

The deal will also make it easier for Brits under 35 to travel and work in Australia for three years and vice versa, after the UK successfully convinced Australia to remove a rule that enables British citizens on a 12-month working visa in Australia to extend it by another year only if they work 88 days in the agricultural sector.

The deal has had some political backlash from certain industries within both countries: in Australia, farmers have warned that proposals to exempt British backpackers from having to do farm work when renewing their visas would exacerbate labour shortages. In response the governing Liberal Party are to introduce mechanisms to replace the roughly 10,000 British backpackers who keep in Australia’s agricultural sector operating during the seasonal rush.

In the UK meanwhile, British farmers fear that soaring imports of cheaply produced Australian beef, lamb and sugar would drive down UK prices. They’ve also warned of implications for animal welfare and environmental standards. Sheep and beef farmers in more remote parts of Scotland and Wales are considered most at risk.

To address these concerns the Australian trade deal contains a cap on tariff-free imports for 15 years, using tariff rate quotas and other safeguards, and the Government made clear that all imports from Australia would have to meet animal welfare and food safety standards.

Many experts believe that the concerns over the UK being flooded by cheap Australian beef is overstated given that exports volumes are currently very small, and Australia’s main export market is Asia. However what farmers really fear is that offering preferential terms to Australian farmers will create a precedent that will be hard to resist when negotiating trade deals with the USA or Brazil.

Now that the UK has offered a zero-tariff, zero-quota trade deal to Australia it will be expected to do the same for all other countries: this could have a serious impact on the UK farming sector which is a largely uncompetitive sector reliant on subsidies. However, this may present a real opportunity for consumers with the potential for cheaper food in the long-term. Zero-tariff, zero-quota trade deals also open up opportunities for UK exporters, particularly in pharmaceuticals, cars and scotch whisky.

The UK also has the opportunity to break new ground in areas such as digital services and financial services which have not traditionally been areas covered in trade deals. Although we’re not yet certain whether these areas are included in the Australian trade deal, the UK has already successfully added a digital and financial service chapter to it rollover deal with Japan.

Overall, as the UK enters into a new area of negotiating its own trade deals for the first time in more than 40 years, it will have to find a way to navigate the delicate balance of the economic opportunities of free trade with the some of the downsides that greater global competition will inevitably have on certain domestic sectors. There is always a balance to be found between commercial benefits and the impact on citizens. If the Government is to succeed in this balance, and to be seen to do so, it will need successfully to argue the case for Global Britain at home as well as abroad.

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