What’s stopping the UK-Australia trade deal from being signed?

Scott Morrison says he’s waiting for ‘the right deal’ before the UK-Australia free trade agreement (FTA) is finalised, but what are the sticking points preventing a signing?

The UK is eager to kick off its post-Brexit economy by securing free trade agreements covering 80% of its trade within the next three years. The UK Department for International Trade believes a trade deal could secure an additional £900 million ($1.6 billion) in exports to Australia.

In 2019-20, two-way goods and services trade was valued at $36.7 billion, making the UK Australia’s fifth-largest trading partner, according to the Department of Foreign Affairs and Trade (DFAT).

Last week, Australian Trade Minister Simon Birmingham signalled that the deal is on the precipice of being signed, telling Sky News, “We are very, very close to an in principle agreement around the terms of a free trade agreement between Australia and the United Kingdom being settled.” 

“We’ve always been clear that we’ll only do a deal if it’s in Australia’s national interest and that is what we are driving towards in these closing few days and hours of negotiations around the in principle terms of the agreement,” he said.

Prime Minister Scott Morrison is currently in the UK for the annual G7 meeting, and is widely expected to finalise the FTA tomorrow, if certain issues can be dealt with.

What’s slowing down the UK-Australia free trade agreement?

From the UK perspective, Australian agricultural products are a big worry, with the National Farmers’ Union (NFU) publicly pleading for tariffs to remain on Australian beef and sheep. 

In the words of NFU president Minette Batters, “…a tariff-free trade deal with Australia will jeopardise our own farming industry and could cause the demise of many, many beef and sheep farms throughout the UK”. 

While the UK government has moved to placate concerns by phasing in the tariff removals, the farming union remains unequivocally opposed. It contends that whether tariffs are removed now, or in 15 years time, the damage would be irreversible. 

Australian farms are much larger on average, due to the relative size differences between the countries, and Australian farmers have different regulations when it comes to growth-enhancing hormones for its cattle industry, which are completely banned in the EU. UK farmers are concerned they would not be able to compete with Australian prices without tariffs. 

Australia’s reluctance to ease the ability for UK citizens to work and in Australia under ‘certain’ visa and investment conditions in a reciprocal deal is also putting a pause on signing, according to sources quoted in the Australian Financial Review.

What’s in it for Australian SMEs?

Securing mutual recognition for professional qualifications could benefit Australia’s growing financial and professional services industry, according to DFAT.

The UK is Australia’s third-largest services trading partner, accounting for 7.7% ($13.9 billion) of total services trade in 2019-20. 

From the Australian perspective, the UK FTA would help primary producers diversify away from Asia.

China is Australia’s biggest export market for the agricultural sector, leaving Australian farmers painfully exposed when tariffs follow from political disagreements between the two countries. In 2020, China placed tariffs of 200% on Australian wines, and has more recently confirmed they will remain for the next five years.

Winemakers could potentially see tariffs removed for entry into the UK market, as the deal would override the current EU-tariffs, which in 2019 were €0.13 to €0.15 per litre.

The UK is Australia’s largest export market for wine by volume, according to Wine Australia. Some 267 million litres were exported in 2020, an increase of 19% from the previous year. As a comparison, the US imported 136 million litres, and China imported 96 million litres.

Currently, Chile and South Africa both have zero-tariff wine exports to the UK, with Australia hoping to secure the same deal.

DFAT is also aiming for improved access to government procurement markets for Australian suppliers on the basis of clear and transparent rules for tendering. It is not yet clear what this will look like on paper.

The FTA also seeks to simplify digital trade between the two nations, by ‘reducing digital barriers’. The goal is the free flow of data, ensuring customs duties are not imposed on electronic transmissions, according to David Collins, professor of International Economic Law, City, University of London.

For financial and professional services businesses, and Australian agricultural producers, the potential benefits are clear cut. For other SMEs, the details following from the initial in principle agreement will decide the difference.