The UK-Australia trade agreement: what do we know so far?

Published 09/07/2021   |   Last Updated 09/07/2021   |   Reading Time minutes

On 15 June, after nearly a year of negotiations the UK Government confirmed that it had agreed a free trade deal with Australia. This is the first new free trade agreement the UK has negotiated since leaving the European Union. The UK’s other trade deals have largely been EU rollover agreements. Although discussions are still ongoing, both parties have published an Agreement in Principle outlining what they have agreed should be included in the deal once it has been finalised.  

What do we know so far?

The main elements of the deal include areas common to most modern free trade agreements. These include provisions on trade in goods, services, digital trade, government procurement and technical barriers to trade. A specific mobility chapter is also included which will mean that UK citizens under the age of 35 will be able to travel and work in Australia more easily.

The agreement will eliminate all tariffs on UK goods exported to Australia and the vast majority of tariffs on Australian goods entering the UK. However, in order to qualify for tariff free trade, businesses will be subject to ‘rules of origin’ requirements. These rules essentially determine where goods are from, for example a UK exporter will have to prove that the product it is selling is from, or has had sufficient work done on it in the UK to qualify for the preferential tariff rates under the UK-Australia agreement.

In order to address specific UK product sensitivities, full tariff and quota free access for agricultural exports to the UK from Australia will be phased in over a number of years through the use of transitional Tariff-Rate Quotas (TRQ). There will also be a general bilateral safeguard mechanism for all goods to “provide a safety net for industry if they face serious injury from increased imports as a direct consequence of the FTA”.

 

Tariff-Rate Quotas: The volume of a certain good that can be imported into a customs area at a lower or zero tariff. Once imports exceed the volume limit of the quota, a higher tariff rate will usually apply.

Potential impact on Wales?

The UK Government has estimated that the overall impact of a trade deal with Australia on the UK economy would be limited, with an anticipated increase in UK GDP of between 0.01% and 0.02% and an increase of 0.00% to <0.05% to Wales’ GVA based on estimated modelling changes to different sectors of the economy.

Modelling conducted by the UK Trade Policy Observatory has also highlighted the limited economic impact of the agreement, with an increase in output for the UK of 0.07% and for Australia an increase of 0.16%. They have argued that the small aggregate economic significance of the deal to the UK is due to the relative size of the Australian economy, distance between both countries, and already low level tariffs on goods.

However, individual sectors of the economy may be affected differently. For example, the UK Government anticipates that a deal with Australia could have a negative impact on the UK’s semi-processed foods and agriculture sectors. Other sectors such as energy, chemicals, rubber and plastics are anticipated to be positively impacted by the agreement.

The Farming Unions in Wales are concerned that the agreement could damage the agricultural sector, as it could be cheaper for UK consumers to buy Australian goods as they are produced at a lower cost. Additionally, the NFU have argued that a tariff-free agreement with Australia could set a precedent for future trade deals with other large agricultural exporting countries such as New Zealand and the US.

How has the Welsh Government responded to the agreement?

The First Minister has previously raised concerns about the potential impact of a trade deal with Australia on the Welsh economy and Welsh language. However a written statement from the Welsh Government on 16 June following the announcement of a deal said that a trade agreement with Australia could bring potential benefits to Wales. The statement also said that the Welsh Government was yet to see the detail of the agreement but that it has engaged with the UK Government throughout the negotiations and was able to feed in its views:

(…) the Welsh Government have been clear throughout the negotiations that any trade deal must not disadvantage Welsh producers or compromise the high quality standards that are so important to us in Wales. We have also raised some concerns with UK Government, particularly around the need to ensure that our producers are able to continue to compete on a level playing field.

The Welsh Government will scrutinise the agreement in principle and subsequently publish a report outlining its potential impact on Wales.

UK accession to the CPTPP

The UK Government believes that the UK-Australia trade deal will help “pave the way” for joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). UK accession negotiations were formerly launched with members of the CPTPP on 22 June 2021. The UK already has trade deals with seven of its members, including Canada, Mexico and Japan.

 

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement between 11 countries around the Pacific Rim. The members are Australia, Canada, Chile, Japan, Mexico, Malaysia, New Zealand, Singapore, Peru, Vietnam and Brunei Darussalam.

The language used in the agreement in principle on the UK-Australia trade deal is also framed in the context of the UK’s intention to join the CPTPP. The chapters on investment, labour and the environment all refer to existing CPTPP provisions and processes as a benchmark for the bilateral relationship between the UK and Australia. Additionally, both sides have committed in the goods market access chapter that “neither side will seek additional access or faster tariff reduction through the UK’s accession to CPTPP.”

What happens next?

Discussions between the UK and Australia are still on-going. Much of the detail needed to understand the full implications of the agreement for Wales is not yet available. The final agreement still needs to be converted into a legal text which can then be signed before both parties initiate their respective scrutiny and ratification processes. To find out more on why Senedd scrutiny of international agreements maters, read our key issues article for the Sixth Senedd.

Article by Rhun Davies, Senedd Research, Welsh Parliament