What does the UK FTA mean for you? A snapshot

This article is co-authored by Andrew Harris.

The UK is one of Australia’s most important trading partners, being Australia’s second largest services trading partner and third largest source of foreign direct investment. The UK is Australia's 5th largest goods trading partner and offers Australian companies the opportunity to reach 66.5 million UK consumers. The Australia – UK Free Trade Agreement (UK FTA) is a welcome step in further integrating the bilateral investment, supply chain interconnectedness, and movement of professional service providers between the two countries. This article will take a look under the hood of the UK FTA, to identify the key early wins for you and your business.

Foreign Investment Review Board (FIRB) Approval

A key outcome of the UK FTA is the change to foreign investment screening thresholds. Companies from the UK will enjoy higher monetary screening thresholds for most investments into Australia. This includes investments in developed commercial land and non-sensitive businesses (which includes most business types).

The UK is a key source of Australia’s foreign investment flows and this change will have material benefits for UK companies looking to invest in Australia, as well as recipient Australian companies. For example, in the year 2020-21, UK companies sought 533 FIRB approvals (the 8^th most for any country), predominately in the real estate and service sectors.

This change will be particularly relevant for strengthening ties between Australia and the UK on the energy transition, as it will make it easier for UK companies to invest in Australian renewable energy assets. However, it should be noted that the screening threshold has not changed for UK investments in mining and production tenements. FIRB has also retained its right to screen all investments on national interest and security grounds.

Banks and other financial services providers

Financial service providers, including banks, will benefit from new market access in the insurance, asset management, portfolio management and FinTech sectors. The UK has also made a first-time commitment to apply a range of protections to Australian portfolio investments, which is an important outcome for Australian super funds investing in the UK.

There is also a schedule of quite close engagement between the UK and Australian Governments on FinTech regulation. This presents Australian companies in this sector with an opportunity to engage with the Government to assist with the development of nascent regulation on innovative financial services.

Legal Services

The UK FTA also guarantees Australian lawyers a right to provide legal advisory services in foreign and international law in the UK, including in arbitration, mediation and conciliation, without having to requalify in the UK.

Moreover, the UK FTA provides for Australian and UK legal profession accreditation and regulatory bodies to work towards reducing the remaining barriers for lawyers from each jurisdiction to practise as a local lawyer in each other’s country.

Consumer and agricultural goods

Australian companies will enjoy tariffs being eliminated on UK imports, which includes imports on automobiles, alcohol and high end fashion into Australia.

UK companies and Australian exporters will also benefit from tariffs being removed on 99% of goods entering the UK, including wine (already 20% of wine on UK shelves is Australian) and rice. The elimination of tariffs on wheat, barley, sugar, beef and dairy will occur progressively over the next 10 years.

At the present time, Australia's main exports to the UK include gold, alcoholic beverages, lead, pearls and gems. We should expect to see trade flows increase and diversify, particularly in agricultural exports, as the tariff eliminations kick in.

Digital trade

One of the most important wins in the FTA is the strong commitment to cross-border data flows and rules against data localisation. This should facilitate digital trade, and encourage digital business transactions (i.e. e-contracting and e-payments). Increasing the ease and security of bilateral digital trade couldn’t be more timely as the AUKUS relationship continues to grow.