UK-Australia Trade Agreement: What Are The Main Stakes? | Exchange policy


The prospect of a free trade deal with Australia has alarmed British farmers and some MPs, including the Tories. The stakes are high in what would be the first major post-Brexit trade deal. Here we take a look at the main issues.

What is a free trade agreement?

A free trade policy means that goods and services cross borders unimpeded and at the price set by the producer without state aid. However, most economists would agree that a free trade policy – a policy that prevents the government from discriminating against imports by imposing tariffs and quotas or interfering with exports by offering subsidies – should not be crudely enforced. and mean that a country gives up all control and taxation of imports and exports. Simply put, a deal with Australia, as with other countries, will focus on goods, which are easier to monitor, rather than the more complex and nuanced services sector (which covers areas like law , advertising and banking). It will take more complex negotiations to decide how to implement an agreement, probably over several years.

Could a free trade deal with Australia hurt UK farmers and businesses?

The impact on farmers is likely to be limited in the short term, after four decades of EU membership that kept tariffs – or taxes on imports – and quotas in place on Australian products. This effectively limited the flow of Australian agricultural exports to a trickle.

In 2019-2020, Australia-UK trade in goods and services was valued at £ 20 billion, making the UK Canberra’s ninth largest trading partner. Only a small proportion was food and drink, which was worth £ 425million in Australia in 2020. The UK imported £ 384million of Australian food and drink, according to analysis of HMRC figures by the Food and Drink Federation (FDF).

Only 0.15% of all Australian beef exports go to the UK. Australian mutton and lamb made bigger inroads on UK supermarket shelves and accounted for 14% of UK consumption last year, worth £ 46million. Wine worth £ 280million has arrived in the UK.

In most cases, Australian exports complement UK production rather than compete. Australia’s main merchandise exports to the UK are gold, wine, lead, and pearls and precious stones. The UK’s main merchandise exports to Australia are cars, pharmaceuticals and Scotch whiskey.

However, the Financial Times reported that Australia’s leading beef exporter expects to increase UK sales tenfold if a deal is struck. Australian beef is produced intensively and at a better price than its British counterpart. UK farmers seem to reject the idea that meat produced in the UK to higher standards will find a market in Australia, and potentially at a higher price.

What are the supporters of a free trade agreement saying?

Free trade was championed in the late 18th century to end tariffs and quotas that economists believed held back economic growth. The corn laws of 1846 symbolized the abandonment of the protection of domestic industries from foreign competition. Agriculture was at the center of the debate then, and it is still the key to signing an agreement today.

Liz Truss’ Commerce Department said a free trade agreement (FTA) could boost UK exports to Australia to as much as £ 900million. It does not focus on agriculture, but on Lancashire’s recently rejuvenated textile industry and the other 13,400 small and medium-sized businesses which account for 85% of UK exports.

These are close ties that could be deepened following an FTA, says Truss. For example, in 2019 the UK was the second largest direct investor in Australia and the second largest recipient of Australian foreign direct investment. Additional investments should be expected following an agreement, she said.

Could this be the model for other agreements?

This is the crux of the cabinet’s feud over a deal with Australia – that it will set the model for similar deals with South Africa, Brazil and, most importantly, the United States, which are all interested. by exporting cheap meat to the UK.

Critics of unfettered free trade agreements that cover agriculture say it will undermine the livelihoods of hundreds of farmers, many of whom can only survive on tariff protection and state subsidies. Farmers tend to inherit their land and buildings tax free and enjoy protections against foreign competition in the form of tariffs and quotas. Without protection, they will leave the land and leave it unarmed, argues the National Farmers Union.

What does this mean for consumers?

The main benefit for UK consumers could be cheaper food and wine and the potential to improve trade relations with Australia, leading to further investment. But the Commerce Department says a deal will only increase GDP by £ 500million spread over the next 15 years, or around 0.025% of GDP, showing how small the likely direct benefit will be.

Could this lead to greater calls for Scottish independence?

Scottish and Welsh farmers are among the most vulnerable to free trade agreements with countries that produce cheap meat. The Scottish National Party has called for the protection of farmers throughout the FTA and said ignoring the call would be another reason for Scots to reject the union.


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