EU in the driver’s seat of Indo-Pacific trade deals
Long-running Free Trade Agreement (FTA) negotiations between Australia and the European Union appear to be emerging from the hiatus they were sunk by the Morrison government’s decision on French submarines. The Albanian government’s climate policy and its efforts to establish good relations with France have been positively received in Brussels and in the main Member States.
Officials have begun to re-engage. The Department of Foreign Affairs and Trade’s senior trade official, Associate Secretary Tim Yeend, was recently in Brussels for a discussion in June between the Australian Trade Minister, Don Farrell, and his European counterpart, Valdis Dombrovskis. And last month, the European Parliament’s Trade Committee – which will have to approve the final deal – paid an official visit to Australia. The next round of negotiations started on October 10 and will last approximately two weeks.
Concluding a trade agreement with the European Union is not an easy task if you are a major agricultural exporter.
Both parties are now talking about the strategic value of an agreement. On a symbolic level, it would be a show of support for the rules-based global order and the World Trade Organization. Most importantly, this would be in line with both parties’ efforts to build economic resilience, diversify trade markets and establish reliable supply chains for critical commodities such as rare earths and energy.
The European Union seems serious about its forward-looking trade agenda. It will intensify its FTA negotiations with India and Indonesia. And the Indo-Pacific EU framereleased earlier this year, supports policy advocacy for an FTA with an important regional partner like Australia.
So far, so promising. But there has been limited transparency so far on what a successful deal might look like. Geopolitical goals will count for little if the economics of the deal fall short.
Concluding a trade agreement with the European Union is not an easy task if you are a major agricultural exporter. There are a range of views in Australia on an FTA with the EU; some are not yet convinced that the European Union can make significant concessions in agriculture; others see just about any deal as a net benefit given the need for market diversification; and for some, the European Union has taken a back seat, eclipsed by post-Brexit opportunities in the UK.
For all these reasons, the FTA concluded between New Zealand and the European Union, announced in Julywas significant as the most recent example of a comprehensive trade agreement concluded by the European Union with an agricultural exporting country.
Comparing the situations of New Zealand and Australia vis-à-vis the European Union is tricky. New Zealand began its negotiations with the European Union around the same time as Australia, but from a different starting point. Unlike Australia, New Zealand already enjoys high levels of EU market access for its main commodities. For New Zealand, an FTA with the European Union was a logical way to complement existing access and establish a platform for future trade.
In the key area of market access, the European Union has excluded a range of agricultural products from its tariff elimination commitment, including meat and dairy products. New Zealand has obtained increases in quota volumes and reductions in in-quota tariffs, but these are relatively modest and the quota rules are fiendishly complex.
In return for access to the agricultural market, the European Union will insist that Australia put in place a legally binding regime for the protection of geographical indications.
For Australia, obtaining the 100% elimination of customs duties from the European Union is nonsense. The main challenge will be to secure commercially meaningful quota volumes for key commodities including beef/meat, sugar, dairy and rice, as well as quota administration rules that allow Australian exporters to really take advantage of the new access.
In the related area of geographical indications, New Zealand has largely acceded to EU requests, agreeing to stop using EU-protected terms for wines and spirits (including sherry, port and prosecco) and agreed to do the same for a number of foodstuffs, including feta. Some limited grandfathering and phase-out periods have been included.
In return for access to the agricultural market, the European Union will insist that Australia put in place a legally binding regime for the protection of geographical indications. Australia has already agreed to protect EU geographical indications for wine, but the European Union will require protection for food terms such as feta, gouda and parmesan. Italy will push for the extension of prosecco, which is opposed by Australian producers.
On the environment, New Zealand’s Paris climate commitments are now enforceable under the FTA, and it has agreed to policy coordination on food production systems. Australia will face pressure to agree the same results. He will also have to be ready for campaigners in the European Parliament demanding further concessions.
Two other areas of interest are public procurement and sanitary procurement and phytosanitary standards (e.g. quarantine and biosecurity measures). The European Union will demand access to public procurement from Australian state and territory governments, and possibly some large local governments, something Australia has never agreed to before. On quarantine, the European Union has long been critical of Australia’s system, often calling it a disguised barrier to trade, and it will expect some improvements in the final deal.
It will be instructive to follow the progress of the negotiations on these issues. Given the difficulty of these issues, neither side is expected to make any serious concessions until the very final stages of the negotiations.