Public Affairs & Government Relations

FTI Consulting Public Affairs Snapshot – The deal from “down under” – the UK-Australia FTA

Only 18 months ago the UK and Australia launched negotiations on a Free Trade Agreement (FTA), the ink of which is now dry in an early Christmas present to free trade aficionados everywhere. The first FTA negotiated from scratch by the UK’s cadre of new trade negotiators, the signing of the deal is a genuinely historic moment for Global Britain. So, what’s in the UK-Australia FTA? And what does it tell us about the UK’s new trade policy?

Identifying that a newly independent UK would need trade deals and friends outside the EU to make them with, Australia was first to the table when the outcome of the Brexit referendum in June 2016 was known. Alongside a shared history and language, Australia and the UK have historically been advocates for free and open trade and investment – albeit the UK’s voice had hitherto been heard under the auspices of the EU’s institutions.

Naturally, Australia’s interest in a trade agreement with the UK was not simply based on a desire to help an old friend. It is no coincidence that a UK outside the EU was a prime destination for some of Australia’s most economically and politically important exports – with beef the obvious example. Perhaps a cynical view, but it’s likely Australia’s veteran negotiators spied an opportunity to get a better deal if they were first in line, given the UK’s cadre of new, un-blooded, trade negotiators and a perception that ‘Brexit Britain’ would be desperate to secure a deal at virtually any cost.

“I want a world in which we send you Marmite, you send us Vegemite. We send you Penguins, and you send us, with reduced tariffs, these wonderful Arnott’s Tim Tams” UK Prime Minister, Boris Johnson, announcing the start of talks on the UK-Australia FTA on 17 June 2020.

In this context, highly experienced Australian negotiators up against the UK’s newbies, you might expect the outcome to be one-sided in nature.  In fact, the deal is balanced. Particular headline ‘wins’ for the UK are the slashing of all tariffs on UK exports, and the extension of eligibility for a Youth Mobility Visa from 30 to 35, coupled with the removal of the ’88-day rule’ mandating that applicants work for three months in Australia’s agriculture or tourism sectors. Major UK-based investors will also benefit from reforms to Australia’s Foreign Investment Review Board meaning that transactions will now only need to be scrutinised if they are valued at more than $1Bn AUD. Equally, Australia got much of what they wanted on agriculture, although a 15-year timeframe for access to the UK market for sensitive products is longer than they would have liked.

Notably, elements of this deal are at least as good as, if not better than, what the UK would get via the Pacific’s regional trade block, the CPTPP, which the UK is looking to join next year, and of which Australia is already a member. Although presented as a fait accompli by ministers, there is no guarantee the UK will succeed in its application – at least not quickly – given all 11 members need to agree on the terms of the membership of the club. So ‘at least as good as’ now is worth a lot. Plus, getting a comprehensive, modern and innovative, deal over the line sends the signal to trade partners around the world that the UK’s new negotiators are serious about their business.

Indeed, from a political perspective, the deal is most valuable for the message it sends about the so-called Brexit dividend. A core component of the leave campaign was the repatriation of interests and the resulting flexibility to trade with the world unencumbered by the weight of European concerns. This deal provides evidence to support that proposition; the EU started negotiating their own deal with Australia several years before the UK left, and, with relations between Australia and France at an all-time low after their recent spat over cancelled submarine contracts, conclusion of the EU-Australia deal is not on the cards anytime soon.

Nevertheless, like any negotiated deal, there are compromises. Much-publicised leaks earlier this year outlined the swallowing of UK ambition for language on climate change and the environment to avoid risking the deal. These issues have never been more politically important in the UK’s politics than now.

There is also the simple fact of unimpressive possible economic gains from the deal – estimated at only 0.01-0.02% of UK GDP. Both the UK and Australia framed the deal as supporting their economies to ‘build back’ after the COVID-19 pandemic; it is difficult to see how this FTA will achieve that. Furthermore, the Government’s own impact assessment even highlights £94m potential damage to the UK’s farming, forestry and fishing sectors.

Implications

Any starting point for both parties in a trade negotiation is normally their most recent agreement, which often becomes the blueprint for the next. So it will be for the UK. As blueprints go, the deal with Australia sets a high bar for both quality and speed – potentially too high, to easily replicate. A deal with a likeminded advocate of free trade can be done well and quickly, precisely because they have the political interest in making it happen.

This political will to get a deal over the line is critical. One of the most important elements of the UK’s new trade policy is the more-or-less invention of an ‘Agreement in Principle’. This top-down, rather than bottom-up, approach to negotiations potentially makes it easier to overcome challenges. It is a concept with swift conclusion of negotiations at its heart, and which leaders at the highest political level from Australia, New Zealand and Singapore have bought into. However, there is no guarantee that the UK will have such fortunes in negotiations with less obvious trade partners, especially with countries whose leaders see free trade as a potential threat to domestic industries or political stability.

As such, in future, more challenging negotiations, it may prove necessary for the UK to offer greater concessions or sacrifice ambition to reach a deal. UK industry will therefore need to clearly articulate to Government what the most important objectives of a trade deal with future partners should be, especially in the context of the Government’s manifesto commitment to cover 80% of the UK’s trading relationships with preferential deals by the end of 2022. To launch and conclude deals with India, Mexico, Canada, and the Gulf Cooperation Council in 12 months will require hefty compromises as well as political dedication. Not everyone will be pleased with the outcomes.

Businesses are also not the only important interest group in town. NGOs will continue to make the unfounded claims that trade deals are a threat to the NHS. And the lack of ambition on climate will have strengthened the resolve of departments such as BEIS and DEFRA to ‘do better next time’. While the deal has also been cautiously welcomed by the Labour opposition, there is by no means a Parliamentary consensus on trade policy. These groups will be ready to take the fight to the Government in a way they may not have been first time round as the second wave of new FTAs approaches, with potentially more controversial partners than Australia.

Overall, the UK-Australia FTA is nevertheless a good deal, and a good omen for the UK’s independent trade policy. But with potential speedbumps further in the road ahead, for ministers to maintain a trade policy which supports UK Plc, UK industry need to be most important voice at the table.

 

The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.

©2021 FTI Consulting, Inc. All rights reserved. www.fticonsulting.com

 

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