UK-Australia trade deal: what are the key issues? | Trade policy

The prospect of a tariff-free trade deal with Australia has alarmed British farmers and some MPs, including Conservatives. A lot is at stake in what would be the first post-Brexit major trade deal. Here we look at the key issues.

What is a free trade deal?

A policy of free trade means goods and services travel across borders unhindered and at the price set by the producer without state support. However, most economists would agree that a free-trade policy – one that prevents the government from discriminating against imports by imposing tariffs and quotas or interfering with exports by offering subsidies – should not be applied crudely and mean that a country abandons all control and taxation of imports and exports. To keep it simple, a deal with Australia, as with other countries, will focus on goods, which are easier to monitor, rather than the more complex and nuanced services sector (which covers industries like law, advertising and banking). There will still need to be complex negotiations to decide how to apply a deal, most likely over several years.

Could a free trade deal with Australia harm British farmers and businesses?

The impact on farmers is likely to be limited in the short term, after four decades of EU membership that kept tariffs – or taxes on imports – and quotas in place on Australian produce. This effectively limited the flow of Australian farm exports to a trickle.

In 2019-20, trade in goods and services between Australia and the UK was valued at £20bn, making the UK Canberra’s ninth most important trade partner. Only a small proportion was food and drink, which was worth £425m to Australia in 2020. The UK imported £384m worth of Australian food and drink, according to analysis of HMRC figures by the Food and Drink Federation (FDF).

Only 0.15% of all Australian beef exports go to the UK. Australian mutton and lamb have made bigger inroads on to UK supermarket shelves and accounted for 14% of UK consumption last year, worth £46m. Wine worth £280m came into the UK.

In most cases, Australian exports complement UK production rather than compete. Australia’s main goods exports to the UK are gold, wine, lead, and pearls and gems. The UK’s main goods exports to Australia are cars, pharmaceuticals and Scotch whisky.

However, the Financial Times has reported that Australia’s top beef exporter expects to increase sales to the UK by 10 times should a deal go through. Australian beef is produced intensively and more cheaply than its UK equivalent. UK farmers appear to reject the idea that meat produced in the UK to higher standards will find a market in Australia, and potentially at a higher price.

What do supporters of a free trade deal say?

Free trade was championed in the late 18th century to end the tariffs and quotas that economists believed held back economic growth. The Corn Laws in 1846 symbolised the move away from protecting domestic industries from foreign competition. Farming was at the centre of the debate then, and it is still key to the signing of a deal now.

Liz Truss’s trade department says a free trade agreement (FTA) could increase UK exports to Australia by up to £900m. Her focus is not on farming but the recently rejuvenated Lancashire textile industry and the other 13,400 small and medium-sized firms that make up 85% of UK exports down under.

These are close ties that could be deepened following an FTA, says Truss. For instance, in 2019 the UK was the second largest direct investor in Australia and the second largest recipient of Australian foreign direct investment. Further investment should be expected following a deal, she says.

Would it be the blueprint for other deals?

This is the crux of the cabinet row over a deal with Australia – that it will set the template for similar deals with South Africa, Brazil and most importantly the US, which are all interested in exporting cheap meat to the UK.

Critics of unfettered free trade deals that cover agriculture argue that it will undercut the livelihoods of hundreds of of farmers, many of them only able to subsist courtesy of tariff protection and subsidies from the state. Farmers tend to inherit their land and buildings tax free and enjoy protections from foreign competition in the form of tariffs and quotas. Without protection they will vacate the land and leave it unfarmed, argues the National Farmers Union.

What does it mean for consumers?

The main benefit to UK consumers could be cheaper food, wine and the potential for business relations with Australia to improve, leading to further investment. But the trade department says a deal will only boost GDP by £500m spread over the next 15 years, or around 0.025% of GDP, showing how small the likely direct benefit will be.

Could it lead to greater calls for Scottish independence?

Scottish and Welsh farmers are among the most vulnerable to free trade deals with countries that produce cheap meat. The Scottish National party has called for farmers to be protected in any FTA and said ignoring this call would be another reason for Scots to reject the union.