The United Kingdom (UK) and Australia are seeking to establish a new trading relationship underpinned by a comprehensive free trade agreement (FTA). The two sides have set out their respective negotiating objectives to gain an understanding of where there is alignment and where the tensions might lie. This briefing provides an analysis of the negotiating objectives and discusses how the negotiations might be impacted by various economic and political considerations.
HM Government and the Australian Government formally commenced trade negotiations on 17 June, aiming to conclude a comprehensive and ambitious FTA covering goods, services and investment. Liz Truss, UK Secretary of State for International Trade, and Simon Birmingham, Australian Minister for Trade, Tourism and Investment, kicked off the talks via videoconference. Birmingham has indicated that the parties are aiming to conclude an FTA by the end of 2020, which was a very ambitious timeframe and seems unlikely at this stage. The first and second rounds have so far been concluded, while the third round began on the week of 23 November.
In preparation for the negotiations, the UK Department for International Trade had published a policy paper on UK-Australia free trade agreement: the UK's strategic approach, which sets out its negotiating objectives, response to the call for input from the industry, and results of the scoping assessment.1 The Australian Government has published a policy document on Australia-United Kingdom Free Trade Agreement: Summary of Negotiating Aims and Approach, which sets out its high-level objectives for the negotiations.2 There is a high degree of alignment between the UK and Australian positions, accompanied by strong political will to deepen collaboration between the two nations.
Australian chocolate biscuit Tim Tam has become a symbol of how UK consumers could benefit from a UK-Australia FTA, with UK Prime Minister Boris Johnson calling for reasonably priced Tim Tams in the UK (and a corresponding export of British Penguin biscuits). Despite the media banter, an FTA could bring serious economic benefits to both nations. The UK’s Department for International Trade (DIT) estimates that an FTA could increase exports to Australia by up to £900 million, and increase UK GDP by £500 million and UK workers’ wages by £400 million in the long run.3 It is considered that services businesses, and those providing digital services in particular, could benefit the most from a UK-Australia FTA, as well as suppliers of goods such as Australian wine and Scotch whisky. A UK-Australia FTA is seen by DIT as important in aiding the economic recovery from the coronavirus pandemic, by keeping markets open and diversifying supply chains.
HM Government describes Australia as a like-minded and key ally, highlighting that the UK and Australia share a head of state and a system of common law, have a proud shared history and common set of values, in particular a belief in the merits of trade openness, the rule of law, international co-operation and democratic government. However, despite these cultural ties, the economic relationship between the two countries has not kept apace. When the UK entered the European Economic Community in 1973, the UK went from being Australia’s third largest two-way goods trading partner to now its twelfth, as British companies shifted trade towards Europe and UK consumers turned away from Australian produce when high tariffs and low quotas were imposed.4 The UK’s withdrawal from the European Union (EU) is therefore considered an opportunity to rejuvenate and strengthen the economic ties between the two nations.
The EU does not currently have in place an FTA with Australia, although negotiations between the two countries have been ongoing since June 2018. Trade is currently conducted under the 2008 EU-Australian Partnership Framework, which aims to reduce technical barriers and improve trade but is not a formal FTA. Thus, there is a clear opportunity for the UK to deepen its trading relationship with Australia far beyond the status quo under a UK-Australia FTA providing comprehensive coverage of goods, services and investment, with the wholescale removal of tariffs and quotas.
It should be noted that Australia is currently in the midst of trade and diplomatic disputes with China, its largest trading partner, notably over exports of barley and beef. The Australian Government may therefore be keen to strengthen its trading relationship with the UK in order to diversify its export markets.
HM Government also hopes that a UK-Australia FTA will help the UK to eventually join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which would improve access for UK businesses to markets in the Asia-Pacific region. There is no doubt the support of an influential signatory such as Australia would assist the UK’s bid to CPTPP accession.
Cross-sectoral measures – goods
HM Government’s position on goods is to secure broad liberalisation of tariffs on a balanced and mutually beneficial basis, taking into account UK product sensitivities, in particular for agriculture, and secure comprehensive access for UK industrial and agricultural goods into the Australian market through the reduction or elimination of tariffs. Similarly, the Australian Government is aiming to secure the elimination of tariffs for all goods, and establish mechanisms that address non-tariff barriers to trade between Australia and the UK. The liberalisation of tariffs should be a fairly straightforward exercise given that clear mutual interest is recognised on both sides.
HM Government would develop simple and modern Rules of Origin (RoO) that reflect UK industry requirements and consider existing as well as future supply chains, supported by predictable and low-cost administrative arrangements. It will be particularly important to ensure that UK products that incorporate EU parts can be exported as originating from the UK under a UK-Australia FTA, which is a priority for HM Government. The Australian Government is aiming for liberal RoO that facilitate market access and reflect modern production processes, global value chains and commercial transportation arrangements. It is envisaged that there may be some friction in negotiating provisions on origin labelling of agricultural products, as the UK will likely seek to retain geographical indications (GIs) for British products that it currently has under EU trading arrangements (such as Scotch beef and West Country Farmhouse cheddar). This approach may face opposition from the Australian Government if it would have the effect limiting opportunities for Australian farmers.
HM Government also intends to reduce technical barriers to trade by removing and preventing trade-restrictive measures in goods markets, while upholding the safety and quality of products on the UK market. In terms of sanitary and phytosanitary measures (SPS), HM Government intends to uphold the UK’s high levels of public, animal, and plant health including food safety. The UK’s approach would secure access for UK agri-food goods to the Australian market through commitments to improve the timeliness and transparency of approval processes for UK goods. The Australian Government also aims to reduce technical barriers to trade with the UK by assessing and removing trade-restrictive measures, while also ensuring that robust health and safety standards continue to protect Australian consumers and industry, as well as Australia’s unique environment. There may some difficulty in reaching a consensus on the removal of barriers in terms of food standards as certain products which are currently banned in the UK – in particular hormone-treated meat – are widely available on the Australian market. It is unlikely that HM Government would compromise on food standards to secure an FTA with Australia, given the political controversy that would be caused in the UK by such a move.
Cross-sectoral measures – services
The services sector is of considerable importance to the UK economy, making up a staggering 81% of total UK economic output in 2018.5 The expansion of UK export of services is therefore an important objective of HM Government’s trade policy, which it aims to further under a UK-Australia FTA. HM Government intends to secure ambitious commitments on market access and national treatment to ensure certainty for UK services suppliers in their access to the Australian market. It is also seeking to secure best-in-class rules for all services sectors, as well as sector specific rules to ensure transparency and support the UK’s “world-leading” services industries, including key UK export sectors such as financial services, professional and business services, telecommunications and transports services. HM Government also sees it as important to ensure certainty for UK services exporters in their continuing access to the Australian market as well as transparency on Australian services regulation. The Australian Government’s aim is to secure ambitious commitments from the UK that strengthen the trading relationship across all services sectors, including in financial and professional services, highlighting the need for mutual recognition of professional qualifications. HM Government views mutual recognition of professional qualifications as an important mechanism to facilitate free movement of professional workers between the UK and Australia.
Services is an area where both the UK and Australia recognise the opportunities to increase trade. Mr Birmingham sees there being “real upside” in terms of services liberalisation and investment flow because these are the areas where the UK-Australia relationship is already very strong and have the opportunity to get even stronger. Similarly, HM Government considers providing certainty and additional access to the Australian markets for UK services businesses as a key benefit of an FTA, noting that services accounted for 60% of total UK exports to Australia (worth £6.9 billion) in 2019.
HM Government has set a priority of securing greater access for UK financial services firms to the Australian markets, reflecting the strategic importance of the financial sector to the UK economy. It intends to expand opportunities for UK financial services to ease frictions to cross-border trade and investment, complementing co-operation on financial regulatory issues. The Australian Government is aiming to secure provisions that strengthen existing two-way trade in financial services, and explore the cross-application of key digital trade rules such as data flows and the location of computing facilities, as well as address behind-the-border barriers to financial services trade, including exploring ways to increase regulatory coherence. It is understood that Fintech and green finance are key areas in which the UK and Australia will seek to deepen collaboration.
Financial services has historically been a difficult area in which to facilitate trade liberalisation due to the complexity of regulatory frameworks, which can present significant obstacles to market access. Greater regulatory co-operation will be essential to enabling greater trade liberalisation between the UK and Australian financial markets, with sharing of regulatory expertise potentially leading to greater harmonisation and the reduction of trade barriers. HM Government envisages the reduction of regulatory obstacles to facilitate market access for UK businesses and investors, underpinned by regulatory cooperation as well as public consultation, use of regulatory impact assessments and retrospective review. HM Government has made it clear however that it is seeking mutual recognition and has no intention to move towards regulatory alignment with Australia or any other country. The Australian Government is seeking to establish a high standard, modern approach to regulatory coherence that promotes stability and certainty for Australian business, underpinned by regulatory cooperation.
Digital and e-commerce
The UK and Australia both envisage a high degree of trade liberalisation and collaboration in the area of digital trade and e-commerce, and consider it an important strategic priority. HM Government is aiming to secure “cutting-edge” provisions which maximise opportunities for digital trade across all sectors of the economy, while also promoting a world leading eco-system for digital trade that supports businesses of all sizes across the UK. The UK’s approach also includes provisions that facilitate the free flow of data, whilst ensuring that the UK’s high standards of personal data protection are maintained, and include provisions to prevent unjustified data localisation requirements. As part of its trade policy, HM Government is aiming to “future proof” all FTAs with digital provisions in order to take advantage of the benefits of the Fourth Industrial Revolution and increased digitalisation. The establishment of strong rules on data flows and localisation is also a priority for the Australian Government, aiming to create a more certain and secure online environment for Australian businesses and support increased growth of e-commerce.
HM Government intends to promote appropriate protections for consumers online and ensure that it maintains its ability to protect users from emerging online harms. It should be noted that HM Government is contemplating the introduction of a new regulatory framework for online safety which envisages a new statutory duty of care with compliance enforced by a regulator through fines and even senior management liability.6 The Australian Government is also keen to ensure appropriate protections for consumers and for legitimate public policy concerns in the area of digital trade, so will likely find common ground with the UK concerning online harms.
Australia has a strong track record of innovation on digital trade, having recently agreed the Australia-Singapore Digital Economy Agreement (DEA). A UK-Australia FTA would provide an opportunity to build on the DEA and reduce barriers to e-commerce and stimulate investment in new technologies. Having recently agreed the UK-Japan Economic Partnership Agreement, which includes a comprehensive digital chapter, it is understood that the UK is aiming to negotiate a similar arrangement under a prospective UK-Australia FTA. This might include provisions for prohibiting customs duties on electronic transmissions, protection of source code, legal validity of electronic signatures, facilitating electronic transfer of information, and prohibiting requirements for the location of computing facilities.
HM Government has set out its intention to agree rules that ensure fair and open competition, and address barriers to UK investment across the Australian economy, ensure UK investors in Australia continue to enjoy high standards of treatment, and maintain the UK’s right to regulate in the national interest. The Australian Government is seeking modern and comprehensive investment rules that further strengthen its investment partnership with the UK, noting that the UK is the second largest source of foreign investment in Australia (valued at AU$127 billion). It is unclear whether the two sides envisage provisions for an investment arbitration tribunal under a prospective FTA to uphold fair treatment of investors.
HM Government has made it a strategic objective of UK trade policy to promote its environmental objectives with trading partners, which is reflected in its approach to a UK-Australia FTA. It is aiming to ensure that the parties reaffirm their commitment to international environment and labour standards, ensure parties do not fail to enforce their domestic environmental or labour protections in ways that create an artificial competitive advantage, and include measures which allow the UK to maintain the integrity and provide meaningful protection of the UK’s environmental and labour standards.
With regard to tackling climate change, HM Government is aiming to secure provisions that support and help further its commitments on climate change, and in particular achieving net zero carbon emissions by 2050.7 This would involve promoting trade in low carbon goods and services, supporting research and development collaboration and maintaining both parties’ right to regulate in pursuit of decarbonisation, as well as reaffirming their respective commitments to the United Nations Framework Convention on Climate Change and the Paris Agreement. The Australian Government’s approach aims to include FTA commitments that are consistent with internationally agreed principles, standards and rules that have a clear link to trade, noting that Australia and the UK share high standards on environmental protection.
It is clear that both the UK and Australia have a common interest in utilising trade policy to help tackle climate change. From floods in the UK to bushfires in Australia, the effects of climate change on the environment have been felt in the two countries and combatting climate change is now an important policy objective for both HM Government and the Australian Government. A UK-Australia FTA would provide a significant opportunity for the two sides to establish leadership in this area through deeper collaboration.
A UK-Australia FTA will likely present significant opportunities for businesses on both sides to bolster their commercial activities in the UK and Australia, respectively. Market access arrangements for goods and services as well as investment may come with fewer costs and administrative hurdles, making it simpler and less costly to do business between the two countries. It is important that businesses understand the impact that the future trading relationship between the UK and Australia will have on their operations in order to capitalise on potential market opportunities.