The AU-EU FTA would cover goods, services and business investment, but the EU has set new requirements that link trade liberalization to climate.
The Free Trade Agreement between Australia and the European Union (AU-EU FTA(EU).
In 2016, due to the fallout from Brexit, the Turnbull government announced that it had entered into negotiations with the EU for an AU-EU FTA, with the first round of negotiations taking place in early July 2018.
The most recent round of negotiations for the AU-EU FTA took place virtually from February 7-18, 2022, but further negotiations have been suspended since France blocked further progress following the cancellation by the Morrison government of the French diesel supply contract. motorized submarines. Australia’s relations with France were frozen until May, when newly elected Anthony Albanese sought to reinvigorate the spirit of cooperation between the nations, with the EU now giving a clear signal to continue negotiations.
The form of these negotiations is a little clearer, with reports that the EU will include sanctions for failing to meet Paris Agreement emission reduction targets (Australia has already met the obligation to commit to carbon neutrality). Some members of the European Parliament have also called for more sustainability commitments in trade agreements, which could be a factor since the European Parliament must approve any FTA.
In addition to climate issues, the EU is also seeking new laws on geographical indicators, which would bring the rules already in place for wine closer to foodstuffs, while pushing back the size of quotas for beef, lamb and dairy.
Why does Australia need a Free Trade Agreement with the EU?
The AU-EU FTA aims to build on the partnership between Australia and the EU, as they both share a commitment to the rule of law, global standards and free and open markets. According to the Department of Foreign Affairs and Trade (DFAT), Australia exported $18.7 billion worth of goods and services in 2019-20 and imported $59.9 billion during the same period.
As a bloc, the EU is a high-income market with a population of just under 450 million and a GDP of around US$15 trillion. In 2020, it was Australia’s second largest trading partner, as well as our seventh largest export destination, fourth largest services export market and second largest source of foreign investment.
>Similar to the Australia-UK Free Trade Agreement which was signed on December 17, 2021, an agreement with the EU will provide new opportunities for Australian goods and services in a very important market, which in turn will help Australia in its post-pandemic economic recovery. The AU-EU FTA also has the potential to provide Australian exporters with a competitive advantage and more choice in where they do business, while providing Australian consumers with a greater choice of goods and services at lower prices.
Potential Benefits of the AU-EU FTA
The AU-EU FTA has, like most FTAs, the potential to create significant benefits for Australia, such as:
- improving market access for Australian exports;
- guaranteed access for Australian service providers;
- expansion of investment flows in both directions;
- a more predictable and consistent business environment;
- rules to support the digital economy and innovation;
- reducing costs and bureaucracy, especially for small and medium-sized enterprises;
- greater consumer choice;
- high standards, especially in terms of sustainable development; and
- more jobs (noting that one in five Australian workers are employed in a trade-related activity, of which 1.57 million work in exports and 671,000 in imports).
What could the AU-EU FTA bring?
Australia has been at the forefront of entering into modern and comprehensive FTAs which aim to maximize tariff reductions for Australian exporters, open services markets and establish rules to enhance trade and investment, reduce regulatory risks and support further liberalisation.
The AU-EU FTA would cover goods, services and business investment and is seen as essential if Australia is to reduce its trade dependence on China. According to an impact analysis, trade in goods and services between the two partners could increase by around a third.
For example, the AU-EU FTA has the potential to provide:
- Industrial products: The elimination of all EU tariffs on industrial goods (noting that currently the EU has higher tariffs than Australia on many industrial goods, with exports facing tariffs of up to 12% on minerals and metals, 10% on wood and paper and 7% on chemicals). In return for better access to the EU market, Australia would make equal reductions in tariffs on imports from the EU.
- Agricultural products : Tariff liberalization of Australian agricultural exports, including beef, sheepmeat, sugar, cheese and rice, which are currently significantly constrained by EU tariff rate quotas (noting that negotiations on certain agricultural products will be particularly difficult given, for example, that some EU countries have protectionist agricultural sectors).
- Services: Guaranteed access for Australian service exporters, in addition to creating new opportunities in sectors of key trade interest, such as education, financial and professional services. The AU-EU FTA also offers partners the opportunity to establish a framework for the mutual recognition of professional licenses and qualifications, as well as greater certainty for qualified professionals entering the EU labor market.
- Investment: Greater access for Australian businesses with investment outcomes in the AU-EU FTA building on the transparent legal systems of both partners to provide greater predictability for investors. The AU-EU FTA has the potential to enhance Australia’s attractiveness as an investment destination, which in turn will allow Australian businesses to access additional capital, new technologies and supply chains world.
Timeline and next steps for the AU-EU FTA
Currently, the Australian government is aiming to accelerate negotiations and advance the AU-EU FTA, with the next formal round of negotiations in October.
Throughout the negotiation period, DFAT indicates that it would be interested in receiving submissions from interested individuals and groups on the opportunities and potential impacts of the AU-EU FTA. In your brief, it would be useful to consider the impact the AU-EU FTA may have on your business and the opportunities that are likely to arise from partnering with the EU to help the government determine key priorities for the EU. Australia for the continuation of the FTA negotiations.
Furthermore, since the AU-EU FTA is likely to have significant implications for Australian businesses and could open up various opportunities worth exploiting, Australian businesses involved in trade and foreign investment , or those seeking to attract foreign capital, must prepare for the changing landscape and continue to stay abreast of the changes to come.