The idea promoted in the media that the UK and Australia will have to struggle through heated debates, tense negotiations and rigorous arm twisting to agree a trade deal seems to be as real as a scene from WWF wrestling. It is hard to think of two countries that have more to gain from a free trade agreement. But still the papers tell us that like a good WWF protagonist – Liz Truss was planning on giving her Australian counterpart, Dan Tehan, an uncomfortable chair…. Oh, no! Not the uncomfortable chair. But an uncomfortable chair should not have worried Mr Tehan as this negotiation really should not have taken very long.
Maybe negotiations would have been easier if Liz Truss had gone into the room with THE UK IMPORTS 45% OF ITS FOOD written on her hand. Or maybe THE UK IMPORTS OVER 300 THOUSAND TONNES OF BEEF EACH YEAR. While Dan Tehan should have had AUSTRALIA EXPORTS OVER A MILLION TONNES OF BEEF EACH YEAR written on his hand or maybe THE UK IMPORTS A THIRD OF ITS FOOD FROM THE EU – AUSTRALIA CAN REPLACE ALOT OF THIS. Never has a more obviously fake wrestling match caused more screaming from the side-lines.
However, for some mysterious reason, the UK and Australia still don’t have a trade agreement. This seems to be incredible. The UK press claims that the deal has been delayed so that Boris Johnson and the Australian Prime Minister, Scott Morrison, can announce it themselves in June. But the Australian press is telling a different story – that it is the UK’s Agricultural lobby group, aka the Trade and Agriculture Commission (TAC) that is preventing a deal.
There was also some surprise that the media is reporting that a trade deal with Australia would only boost UK exports by £900 million, a mere 0.02% of the UK’s GDP. Based on this calculation, Mercantilists will conclude that there is no need for the UK to bother with a trade deal. But trade deals benefit countries in many ways. A deal with Australia has a strong political dimension to it as well as economic benefits for UK consumers and producers.
The political dimensions of this deal are immense. While many people are suggesting that this deal will help the UK to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which it will, but more importantly it will also be a loud and clear message to both the EU and to China that Britain and Australia will not kowtow to trade bullies.
At the moment China is bullying Australia for having the audacity to propose an independent investigation into the origins of the Covid 19 pandemic. Considering that this pandemic has devastated the global economy, proposing an investigation hardly seems unreasonable. If for no other reason than to make sure that this never happens again. China has been able to bully Australia because since the 2007/8 Global Financial Crisis China has become Australia’s largest trading partner, a position that was once held by the UK before it abandoned Australia to join the EEC. China has stopped importing some Australian food but not its coal or minerals. China’s bullying is based on the old premise that the customer (China) is always right, and that you should not do anything to upset your customers.
Meanwhile the UK is being bullied by the EU who are upset that they are about to lose their captured market. The European Commission is demanding that the UK align itself with all EU plant, animal health, environment, and food safety regulations and then the EU will drop its demand for checks on food crossing from Great Britain into Northern Ireland. The EU is basically saying if the UK does not give in to our demands, we will torture Northern Ireland. Seriously, the Mafia would be subtler. Great Britain and Northern Ireland are parts of the same country after all, and neither is part of the EU anymore. The EU is even generously offering to allow pets to travel freely with pet passports even though the UK is one of the few European countries that is rabies free.
What is astonishing about the EU’s behaviour is that they do not accept the old adage that the customer (the UK) is always right, they are more inclined to the less well-known adage that the customer must buy what the EU wants them to buy and must not be allowed to shop around.
A trade deal with Australia, especially one that allows Australian food to be sold in the UK, will put paid to the EU’s absurd demands. It would prevent a BRINO relationship with the EU and it would kill the Re-join campaign before it gets started. If the UK is to make a success of leaving the EU, then trading with agricultural producers outside the EU is an important step.
If the UK and Australian negotiators cannot see the obvious message that their trade deal would send to these two trade bullies: that there are other markets and other suppliers, then I despair and sincerely hope that the next UK and Australian governments have considerably more political nous.
The largest economic benefit for the UK will come not from selling things to Australia, but from buying things from Australia, or at least using this possibility to get a better deal from its other suppliers. If UK consumers can buy better quality Australian products for a lower price, this will leave them with more money to spend on other things. A win for both countries. The UK’s food manufacturing industry would also benefit if it can source its raw ingredients for less from outside the EU.
The UK presently imports about a third of the food it consumes from the EU – more because of EU customs union rules than by choice. Since the 1970s, UK’s imports have been limited to EU products by EU regulations, tariffs and quotas preventing the UK from sourcing food from many more efficient producers. In 1969, Australia provided 6% of the UK’s food, while together with the other Commonwealth nations they provided 26%. However, by 2019 Australia’s food exports to the UK had been reduced to only 0.8% of UK food. Meanwhile the UK population has increased from 55 million in 1969 to 68 million in 2021. The UK needs more food, not less and a greater choice of suppliers. If it is true that the Trade and Agricultural Commission, dominated by a handful of Farmers Unions, is helping the EU to hold 68 million UK consumers to ransom, then the Commission should be abandoned.
Trade agreements with agricultural producers outside the EU would enable UK importers to haggle between multiple potential suppliers. While some UK farmers might be hoping to replace EU imports themselves, much that the UK imports from the EU is not produced locally. Instead, it would be EU farmers who must compete with Australian farmers for UK customers.
Australia can produce agricultural products for less than the EU because is has a similar sized land mass, but a milder climate and only 25 million people to feed, a fraction of the EU’s 430 million. Therefore, Australia naturally has excess food to export without having to resort to the intensive indoor farming now common place in the EU. Australia has 394 million hectares of farm land and 87% of it is grazing land. The UK has only 18.8 million hectares of agricultural land, only 10 million is used for grazing, while the rest is mostly under cultivation.
Are the benefits really that small?
Trade is determined by consumers and merely facilitated (or blocked) by government agreements. That is another positive for a UK Australia trade agreement. With similar language, laws, customs and tastes, the UK could probably sell more of its exports and services to Australia than it ever did to the EU despite the tariff and quota free access.
One of the reasons that the UK government figures only project a small increase in export sales to Australia from a trade agreement is because Australia already has much freer trade policies than the UK. Australia actually believes in free and fair trade even though many of their trading partners merely talk the talk. So, a lot of the UK’s potential exports to Australia are already there. But signing a trade deal would reduce or eliminate the tariffs presently charged on them – lowering their price and potentially increasing sales.
There are thousands of examples of UK products in Australian markets. Photographs of any mining operation in Australia will probably also feature massive JCB earth moving vehicles. UK pharmaceuticals dominate Australian pharmacies as any UK tourist will have discovered. (It is much easier to navigate an Australian ‘Chemist’ than it is to find recognisable medicine in a Belgium apotheker or an Italian farmacia or a Greek φαρμακείο). Dyson fans keep Australians cool and Dyson hand driers can be found in most public conveniences. While Yorkshire and Twining’s Tea, Colman’s Mustard, Schweppes drinks, as well as English marmalade (probably made with Spanish oranges) are available in all Australian supermarkets. All the major UK Whisky and Gin brands are available in Australian ‘Bottle Shops’ despite Whisky tariffs of 5% plus $87.68 per litre of alcohol. Australia closed down its heavily subsidized car producer in 2017 so all new cars sold in Australia are imported – including from the UK. The Australian tariff on imported cars is 5% unless producing countries have a free trade agreement. Currently 76% of cars imported into Australia come in tariff free. If Truss and Tehan can ignore the protectionist leanings of the TAC, then UK produced cars could be joining this group.
Similarly, Australia and the UK have always traded in services. Many major legal and accounting firms in Australia have historic UK managerial or ownership connections. The UK’s Vodaphone is a major mobile provider in Australia. While in the other direction: Two originally Australian media operations, News International and Sky, as well as Australian construction firms, Lendlease and Multiplex, and Australian shopping mall proprietor, Westfield, are all established names in the UK. Even Australian merchant bank, Macquarie Bank is helping to manage the UK’s Green infrastructure investments – although Macquarie Bank started life as the Australian branch of the UK merchant bank, Hill Samuel. It is hard to envision service trade between the two countries increasing but Financial services and Fintech are rapidly expanding, and this will bring increased trading opportunities between the two countries. Also, Perth (the Western Australian one) is on the same time zone as Hong Kong and is a natural location for any UK business wanting to get out of Hong Kong but stay in the time zone.
Non-food goods trade also has potential to grow and will benefit both sides. If the UK is to manufacture more electric cars, then it is going to need rare earth minerals for the batteries – Australia is the world’s second largest producer of rare earths after China. If the UK increases its nuclear power production, Australia can supply it with the uranium this will require.
But the big one is food. This is really win-win. Not only will UK consumers benefit but UK farmers will find that they have less competition from Australian farmers than from EU farmers. Australia has opposite growing season as well as a very different climate. The most southerly tip of Tasmania is 48 degrees from the equator – this is as cold and as wet as Australia gets. While the UK’s closest point to the equator is 50 degrees north. Cold and wet is what the UK does best (apparently Oats love this climate). So, while Australia could provide the UK with Olive Oil, Avocados, Papaya, Cane Sugar, chickpeas, almonds, oranges, bananas, melons, fava beans, lentils, cotton, merino wool, wheat, beef, and lamb. The UK is a net importer of all of them part from lamb. But luckily lamb is seasonal, so right now, in April, Australian lamb is turning into mutton while UK lamb is ready to go to market. And Australians like eating lamb – unlike most northern and eastern Europeans – so this could be a natural two-way trade.
While the UK Agricultural Lobby will try to complain that Australian food and Agricultural products are sub-standard. Anyone who has ever visited or lived in Australia will know that the opposite is true. Australia produces some of the world’s top-quality food hence why it is so popular with the wealthy Chinese who travel to Australia to clear the supermarket shelves rather than visit Uluru or the Great Barrier Reef. Even the EU’s protectionist rules technically allow most Australian food in, but with such restricted quotas and high tariffs that it is uneconomic for importers to bother.
Some UK farmers fear that as there is already quota free and tariff free trade with the EU, then if the UK agrees similar terms with Australia, it will be UK farmers who are driven out of the UK market. I would suggest not. For a start Australia will be in competition with southern parts of the EU for UK market share. Also, food is very price elastic. Even the TAC’s recent report claims that their research found that price was the main influence on purchasing decisions and that consumers wanted ‘affordable choice’. Australia can provide UK consumers with affordable choice and the money they save can be spent on other items or on more possibly UK produced food. Affordable choice would also allow UK food manufacturers to move up the value chain or increase their profit margins.
Meanwhile, most northern EU countries have similar climates and the same growing season as the UK. So, most of the products that UK farmers can produce are in direct competition with similar products from EU farmers. It is stupid for UK farmers or the TAC to imagine that UK farmgate prices are not being lower by the increased supply that comes from having the same growing season and no limits on imports from the EU. If the NFU dominated TAC really wants to help UK farmers, then they should be demanding limits on the amount of produce that can be imported from the EU, not from Australia.
But if agriculture really was the sticking point in this trade negotiation, then I would like to hope that it was due to Australia complaining that the UK is still subsidizing its farmers while Australian farmers had their agricultural subsidies removed in the 1980s and 1990s.
The very idea that the press departments of Australia and the UK have been reduced to talking about the benefits of reinstating a system of recognition for university and professional qualifications (one that existed long before the UK joined the EEC) and allowing companies to transfer junior staff for three years instead of just two, (Also something that existed and was used extensively in the 1980’s when the UK needed Australia’s experienced Financial Futures traders and in the 1960s and 70s when Australia needed British Merchant Bankers.) rather than addressing the major benefits to the UK and Australia of having an alternative source of and market for their agricultural products, makes me worry that the government has been taken over by Mercantilist and Protectionists. This is not the Global Britain that we voted for.