UK-Australia trade deal is a priority that makes no economic sense

Sydney Opera House

2 December 2016. By Simon Taylor.

It may be thousands of kilometers away, but Australia has become the flavor of the month among Brexiteers keen to talk trade.

The British minister for international trade, Mark Price, said he and his Australian counterpart, Steven Ciobo, made good progress during a meeting in London on Wednesday on work to “explore a future ambitious trade agreement once the UK has left the EU.”

It was only the beginning. Liam Fox, the UK’s lead trade minister, has announced plans to visit the Sunburnt Country in the first three months of 2017 for further talks.

It’s all part of a strategy. On paper, the UK can’t negotiate a trade agreement with any country as long as it is a member of the EU. But in practice, the government is doing just that, to ensure that it hits the ground running in 2019, when the Brexit process is complete.

Australia may be on the other side of the world, but the UK government is hoping its former colony will become emblematic of a new trade paradigm, in which the sovereign British parliament — rather than faceless Brussels bureaucrats — can decide who to do business with.

But there’s a catch: Australia isn’t ready to be Brexit Britain’s Exhibit A. Australian exporters say their priority remains striking a trade deal with the EU, not the UK.

Josh Anderson, international business manager for Europe at Meat and Livestock Australia, said today that his association’s focus “has to remain a European FTA” because of the size of the EU’s market.

So no matter what encouraging noises UK government officials may be getting from Canberra, Fox’s trip Down Under will not get in the way of the scoping exercise now under way between the EU and Australia to decide what areas should be covered by a trade accord.

Talks in 2017? 

That scoping exercise is expected to be completed soon, and negotiations could start next year. A deal would take about five years to negotiate so, in a best-case scenario, the EU and Australia could finalize an agreement in 2022.

And this means a deal could be in place well before anything the UK could achieve.

The earliest that formal negotiations between Australia and Britain could start would be after Brexit. Allowing five years to sort out a UK-Australia FTA, it is safe to assume that nothing would be ready before 2024 — which means that the UK’s showcase post-Brexit FTA would be with a country already firmly locked into a trade pact with the bloc Britain has chosen to quit.

It won’t be a good look, and trade experts question the wisdom of the UK making a deal with Australia a priority for its post-Brexit commerce policy.

The argument is that it would be much easier for the UK to take over an existing EU free-trade deal — for example, the agreement with South Korea that came into effect in 2011. According to the European Commission, that accord has turned the EU’s previous trade deficit with South Korea into a surplus of 6 billion euros ($6.4 billion).

Focus on beef

The best course of action, experts say, would be to copy-paste the terms of such existing treaties into a future agreement with the UK, rather than venture into unchartered territory with Australia.

This is particularly the case because Australia will have one overriding priority in talks with the UK: To ensure access for its beef exports. At present, the country exports more than 23,000 metric tons of beef to the EU under two strictly defined quotas.

Australian exporters will be on the hunt for market share when the EU’s FTA with Canada comes into effect. That’s because Australia shares part of a 48,200-ton quota for high-quality grain-fed beef imports with Canada and the US.

It will be a zero-sum game: The greater the Canadian gains, the more ground the Australians will have to make up.

None of this is likely to stop the cavalcade of British politicians heading to Canberra even before the Brexit process has been finalized.

The consensus is that Fox has put Australia at the front of the line of his FTA wish-list not because it makes economic sense, but for the symbolic value of having an English-speaking former colony falling back into the loving embrace of the mother country.

The Australians may prove more pragmatic.

	Eliot Gao