Monthly Archives: November 2017

The Europeans get a jump on the Poms

WHILE the Brits turn themselves inside-out trying to work out if they should go for a hard, soft or slightly runny Brexit, the EU is keeping its trade negotiation machine running at high gear.

In recent years the Europeans have been busy stitching together a web of regional and bilateral trade deals that span the globe. Of the 164 countries that are members of the World Trade Organisation, just six do not have preferential access to the EU.

Currently, Australia is one of them. But that could soon change after the European Parliament on 26 October authorised the EU to begin talks on a Europe-Australia Free Trade Agreement (FTA).

This authorisation comes at the end of a long process of sounding each other out and assessing whether such a deal is desirable and worth the effort, so it is a big deal.

It means that a Europe-Australia FTA of some kind is virtually inevitable.

Politically, this is soc in the eye for Theresa May’s Government.

One of the conceits of Brexiteers is that, freed from the shackles of the EU, Britain may once again rise to global eminence as a champion of free trade. Some even hope that the Commonwealth can be transformed into a sort of ‘Empire 2.0’. In their imaginings they hope/believe that former colonies like Australia, New Zealand, Canada and India will fall over themselves at the opportunity to resume the trade links that were severed or downgraded when Britain joined the Common Market in the early 1970s.

Put aside the fact that the days of Empire are remembered far from fondly in much of the Commonwealth, the idea has little grounding in the economic reality of today.

In the days of Empire, Britain was a major manufacturer with a huge appetite for raw materials it was an obvious market for commodities produced by its colonies.

But after 40 years of integration with the EU, the British economy is vastly different. Most of its manufactures are intermediate goods that are part of supply chains that crisscross Europe like a web, and services like finance, education and tourism support much of its wealth.

Meanwhile, the former colonies have well and truly moved on.

Canada is closely dies in economically with its giant US neighbour, Australia and New Zealand look much more to China and Asia for their markets, India is developing into a major economic power in its own right and the former African colonies have more extensive trade arrangements with Europe than Britain.

Europe, the land of opportunity?

It is fair to ask whether Australia needs a trade deal with Europe, given that the EU is already our third largest trading partner (bilateral trade was worth A$68.7 billion in 2015), and a major source of foreign investment (worth A$220.3 billion in 2015).

But there are frictions in the trade relationship.

European agricultural markets such as beef, sugar, dairy and cereals remain heavily protected from Australian exports, contributing to a lopsided trade flow.

In 2015, the EU sold almost A$30 billion more of goods and services to us than we did to them.

The question is whether the Europeans will be able to offer better access to their markets for Australian farmers.

In its statement on the negotiating mandate, the EU has stressed that “the European agricultural sector and certain agricultural products, such as beef, lamb, dairy products, cereals and sugar…are particularly sensitive issues in these negotiations”.

Given that Australia is the world’s third largest beef and sugar producer, and is a major player on global cereal and dairy product markets, Europe’s notoriously bolshie farmers are unlikely to meekly accept increased market access for their Australian competitors without a fight.

The EU trading mandate also calls for meaningful commitments from both parties to protect fisheries against illegal and unregulated fishing, which is significant given concerns about the rapacious fishing practices of fishing fleets operating out of Spain, France and other EU countries.

It appears this might be a fight the EU does not have the stomach for in the current fractious political climate prevailing in Europe, where populist and nationalist movements command significant electoral support.

In careful language, the EU negotiating mandate stipulates that a “balanced and ambitious outcome” on agriculture and fisheries is only feasible if it “gives due consideration to the interests of all European producers and consumers”.

Tellingly, this “consideration” includes the possibility of tariff-rate quotas or unspecified “transition periods”, and even holds out the possibility of so-called safeguard clauses to allow preferences to be suspended temporarily, or even excluding the most sensitive sectors (beef, sugar, cereals, dairy) from negotiations altogether.

Australian negotiators might talk tough if the EU tried to block improved access for farm products altogether, but the Europeans would remember how Australia caved to the US when it refused to include sugar as part of the Australia-US Free Trade Agreement.

Whatever happens on agriculture, the EU wants the FTA with Australia to include “significant concessions on public procurement at all levels of government, including state-owned enterprises”, and is also looking for commitments on anti-dumping and countervailing measures that go beyond WTO rules.

Other provisions the EU is seeking include:

  • a “robust and ambitious” chapter on sustainable development;
  • a requirement to promote corporate social responsibility;
  • comprehensive provision to liberalise investment; and
  • strong and enforceable intellectual property protections.

Brexit dangles like an unanswered question over the Australia-EU trade talks.

The final terms of Britain’s exit from the EU will resound globally. But by pushing ahead with its trade negotiation agenda, the EU is staying faithful to its ambition as the world’s foremost transnational economic community.

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