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Is an Australian Style trade deal half full or half empty?

Australian trade deal
Written by Catherine McBride

Boris Johnson likes to describe ‘no-deal’ as an Australian deal. One former Australian PM Tony Abbott thinks the UK would prosper on Australian terms while another, Malcolm Turnbull thinks Australia’s trade terms should not be emulated. Catherine McBride thinks they are both right.

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This week it was reported that two former Australian Prime Ministers differed on their predictions for the UK if it is left with only an ‘Australian Style’ trade agreement with the EU from January. While Malcom Turnbull, Australian Prime Minister 2015-2018, said that Australia had very bad terms of trade with the EU and so its agreement was not one to emulate, Tony Abbott, Australian Prime Minister 2013-2015, said that the UK would prosper outside of the EU with ‘Australian style’ bilateral agreements. I would like to suggest that they are both right.

Yes, it is true that Australia does very badly out of its trade arrangements with the EU, predominately because the EU is a Customs Union that was specifically designed to keep more efficient producers of agricultural products, like Australia, out of its market.

Australia’s main offer in any trade agreement is agricultural products and extracted minerals and fuel. While the EU buys minerals that they cannot produce like uranium, when it comes to agriculture: Heaven Forbid! The EU will do want ever it takes to keep that out.

Meanwhile, the EU is very happy to sell cars to Australia: a country that is so free market that it actually closed its last, heavily subsidised car manufacturing plant three years ago, and now imports the cars that it needs from more efficient providers in the US, Japan and the EU. So while you will have trouble finding a proper Australian, grass-fed, steak in Brussels, you will see traffic jams of Mercedes, Porsches, BMW’s, Audis and VW’s stretching across Sydney. On the subject of Australian steak, the small amount that is sold in the EU is due to a WTO ruling against one of the many EU precautionary principles, because the EU could not provide any scientific evidence to support their trade barrier. But hey ho. Customs Unions are about protection.

Despite Australia’s trade imbalance with the EU, Tony Abbot is also right: the UK will do very well without an overarching EU trade deal. The UK and Australia have entirely different trade offers. So much so, that you could be forgiven for thinking that the two countries were in fact developed to provide each other with goods.

While Australia has been frustrated by the EU’s refusal to allow it to sell its comparatively advantageous products to EU consumers, in the UK’s case, the boot is on the other foot entirely. For, despite what you may have read in the press, the UK is a net purchaser of EU agricultural goods, and apart from whisky, the few agricultural products that the UK does export to the EU are exported in tiny quantities when compared to the amounts of produce that the UK buys from the EU.

Many UK politicians and Farmers Union officials will try to convince anyone who will listen, that the UK sells a lot of lamb to the EU and that this trade will disappear without a trade agreement. That is possible, but it is worth remembering that the UK only sold a net 80 thousand tonnes of lamb to the EU in 2019, while the UK’s net imports of meat from the EU were over one million tonnes of beef, pork and chicken combined. So who loses without a trade deal? Not the UK. It may even encourage UK beef, pork and chicken farmers to increase their production. Alternatively, all of this meat could be imported from outside the EU. The UK could even buy higher quality products for a lower price. Yet the same people who want the UK tied to the EU so that lamb farmers are protected, will also argue that fishing is a tiny proportion of the UK economy. Well, so are UK lamb exports.

Moving away from the EU’s inefficient and heavily subsidized agriculture could be a massive bonus for the UK economy if the UK is able to import agricultural products from more efficient providers. And there is no reason to think that the UK could not find other markets for its lamb. Lamb is seasonal and both China and the US are larger importers of lamb than the EU, importing 433,000 tonnes and 140,000 tonnes in 2019 respectively, and almost exclusively from southern hemisphere countries. This would give the UK a unique selling point as long as they avoid being tied to any of the EU’s agricultural regulations that are essentially trade barriers in disguise.

Any short term disruption to supply will be forgotten as UK consumers discover that they can buy whatever they need outside the EU. The EU has only held its place as the UK’s food provider by keeping out the competition with exceptionally high tariffs and very limited quotas. While any nation that is able to limbo under these price and quantity obstacles, could find themselves blocked by unreasonable regulatory, anti-innovation and even some ‘fake science’ barriers.

The EU may be huffing and puffing about the UK signing up to its very eastward sloping playing field, but the EU could never match Australia’s flat, unsubsidised agricultural playing fields. And they are unlikely to ever try. Australia will never be given a trade agreement with the EU that includes agriculture. The EU has no interest in fair trade – only in mercantilist trade that keeps EU workers employed, at the expense of EU consumers.

But the EU has generously signed other bilateral agreements with Australia: Australians can provide the EU with investment funds, and there is mutual recognition of qualifications as well as landing rights. And it would also be in the EU’s interest to sign similar agreements with the UK: UK pension and investment funds already hold large investments in the EU; there are many more EU professionals working in the UK than the other way around reflecting a professional job disparity that is likely to continue; and UK citizens spend more money travelling in the EU than they spend on any other EU service sector, indeed many Mediterranean EU member states depend on the annual British migration south.

The EU quite obviously doesn’t want to agree a reciprocating trade deal with the UK. The EU is only interested in retaining the UK as a captured market for its goods with the added bonus of a free supply of fish. The UK took a risk when it voted to leave the EU, but that risk could pay out handsomely if the UK seizes the opportunities before them. The world outside the EU’s Customs Union is growing and developing, and with a vaccine for Covid, the world economy could rebound very quickly. There will be plenty of opportunities for the nimble and versatile but nothing for countries burdened with excessive regulation. The EU’s whole economic model was designed for a different era. It is time for the UK to not only say good bye, but to tear up the Withdrawal Agreement and Northern Irish Protocol on the way out.

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About the author

Catherine McBride